Venezuela: economy, in free fall, benefits the dollar

Text by: RFI Follow

In Venezuela, the Central Bank released inflation figures for 2019: around 9,500%. A high figure, but less important than the 130,000% announced in 2018 and the 200,000% advanced by the International Monetary Fund. Despite a slowdown in inflation, informal dollar trade is now prevailing.

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With our correspondent at Caracas , Benjamin Delille

Inflation is slowing in Venezuela, but that is not necessarily good news. According to economist Henkel Garcia, this slowdown in inflation, which remains the most significant in the world, is a sham operated by the government.

" The government has destroyed bank credit, but an economy without credit is a demonetized economy, so in concrete terms in Venezuela, an economy without bolivars. It is paradoxical, but this destruction of money is what made it possible to contain the rise in price and to contain the exchange rate ”.

For the economist, this made it possible to reduce inflation, but at the cost of the destruction of the national productive apparatus. " Because without bank credit, businesses are in financial difficulty or simply disappear ."

The dollars needed to import

So even if prices in bolivars are no longer rising as fast as before, it does not improve the purchasing power of Venezuelans. Without a productive apparatus, there is no more employment, therefore more wages, but also more products to buy.

The formal economy is in fact gradually replaced by an informal economy , turned towards importation and to import, you need dollars or euros, because the bolivar is no longer worth anything.

So the country is “dollarized” in a totally deregulated way and this increases the inequalities between a minority, which has access to dollars, and a majority which is deprived of it.

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• Venezuela
• Economic crisis

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